Labour Market Equilibrium Flashcards
What way does Black Death shift curve?
- supply shifts back
- assume no change in demand curve
- destroys labour
If capital is a substitute for labour, after Hurricane Andrew does labour demand increase or decrease?
Increases
- supply curve for capital shifts back
-> increase in the price of capital
If capital is a complement for labour, after Hurricane Andrew does labour demand increase or decrease?
Decreases
- supply curve for capital shifts back
-> increase in the price of capital
What happens in the graph for Hurricane Andew where labour and capital are substitutes?
- Demand shifts right
- wages and employment rise
- Assume supply does not change
What happens in the graph where labour and capital are complements?
- Demand curve shifts left
- wages and employment fall
- labour demand decreases
- assume supply does not change
What is Wf?
The total wage (including the tax) a firm pays per hour worked
What is Ww?
The wage a worker receives per hour worked.
Tax (t) =
Wf - Ww
What is deadweight loss (DWL) of the tax?
is the loss of revenue to firms and workers not offset by government
What is the burden for workers of a tax?
W0 - Ww
What is the burden for firms of a tax?
Wf - W0
What does a tax burden depend on?
It depends on the shape of supply and demand curves
demand curve drops by what?
the size of the tax
Who pays for the tax when labour demand is flat (elastic) and labour supply is steep (inelastic)?
Workers (suppliers of labour) bear more of the tax
Who pays for the tax when labour demand is steep (inelastic) and labour supply is flat (elastic)?
Employers (buyers of labour) bear most of the tax burden
Who pays for the tax when labour demand is flat (elastic) and labour supply is flat (elastic)?
the tax burden is shared equally between employers and workers
who pays for the tax when labour demand is steep (inelastic) and labour supply is steep (inelastic)?
the tax burden is shared between employers and workers
Is a steep line elastic or inelastic?
inelastic
Is a flat line elastic or inelastic?
Elastic
Who bears most of the burden of a tax?
The less elastic pays (the more inelastic)
a payroll tax can be treated as what?
A negative tax
S =
Ww - Wf
Who benefits from a payroll subsidy?
most inelastic benefits (least elastic benefits)
With a payroll subsidy what happens to the demand curve?
It shifts out by the size of the subsidy
What is a monopsony?
a market in which there is a single buyer
What is
monopsony power?
the ability of the buyer (of labour) to affect the price of the good and pay less than the price that would exist in a competitive market
In a monopsony what supply curve does the monopolistic firm face?
the market supply curve
Why does the monopolistic firm face an upward sloping supply curve?
in order to hire more workers, it must pay all workers a higher wage - no price discrimination
what 3 factors does the degree of monopsony power depnds on?
- Elasticity of market supply
- Number of buyers
- Competition among buyers
- there is an inverse relationship if 1,2 + 3 go up, monopsony power goes down.
-> It is difficult to assert monopsony power
Small value of (MEL - Wm*)
-> Not a lot of monopsony power
-> Elastic supply of labour
Larger value of (MEL - Wm*)
-> Lot of monopsony power
-> Inelastic supply of labour
what is the reason for a “shortage”?
Monopsony power, not a lack of nurses
How not to fix a shortage?
Increasing the number pf nurses as it resulted in LOWER wages for nurses.
Demand =
Marginal Product of Labour (MPL)
Supply does not equal
Marginal Expense of Labour
What does MPL mean?
Marginal Product of labour: the additional output generated by adding one more unit of labour
What does Marginal Cost mean?
the additional cost incurred by hiring one more unit of labour
If W*m < W min < W1 minimum wage increases or decreases employment?
Increases employment
What does new marginal expense (cost) curve with the minimum wage mean?
To employ another worker after this you have to raise the minimum wage
What does minimum wage radically change?
the marginal cost of another worker for the firm
With a wage subsidy what way does the demand curve shift?
Demand curve shifts right
With a wage tax what way does the demand curve shift?
Demand curve shifts left
With a wage subsidy demand curve shifts out by the size of what?
By the size of the subsidy
